Treasury Management: Convert Aavegotchi Treasury’s DAI to sDAI and sFRAX

Ideas
1

Title: Treasury Management: Convert Aavegotchi Treasury’s DAI and sDAI
Author(ID): 0xlide(#9345) Kingo Iwamoto(#5758)
Quorum requirement: 20% (9M)
Vote duration: 7 days
XP Reward: 20 XP for each Aavegotchi in the voter’s wallet
Date: 2022-10-24

Summary

This proposal suggests converting the held DAI into sDAI and sFRAX to increase the income of the Aavegotchi DAO.

Motivation

AavegotchiDAO holds 6.5 million DAI in its treasury, and by converting this into 3.0 million sDAI and 3.5 million sFRAX, the treasury can generate an annual yield of over $315,000. Furthermore, splitting it into sDAI and sFRAX will help diversify the treasury’s portfolio more than before and reduce its reliance on Maker DAO.

・sDAI

Contract Adress: 0x83F20F44975D03b1b09e64809B757c47f942BEeA
Acquisition Amount: 3,000,000 sDAI
APY: 4.20 ~ 5.00%(*DSR ~ EDSR 2023-10-23)
About: Savings Dai (sDAI) is an ERC-4626 representation/wrapper of DAI in the Dai Savings Rate (DSR) module.The sDAI vault APY is calculated based on the DSR set by Maker DAO and the EDSR, which is determined by the utilization of the DSR. The EDSR has a maximum limit of 5% and decreases as more DAI is staked in the vault. Additionally, the EDSR is a one-time, one-way temporary mechanism, which means that the EDSR can only decrease over time, it cannot increase again even if DSR utilization goes down.

・sFARX

Contract Adress: 0xA663B02CF0a4b149d2aD41910CB81e23e1c41c32
Acquisition Amount: 3,500,000 sFRAX
APY: 5.40%(*IORB Rate 2023-10-20)
About: Staked FRAX (sFRAX) is an ERC4626 staking vault that distributes part of the Frax Protocol yield weekly to stakers denominated in FRAX stablecoins. The sFRAX vault APY is based on a utilization function that can be set by the frxGov governance module. The utilization curve starts at a top end of 10% APY and theoretically has no bottom; however, as more FRAX is staked in the vault, the protocol will attempt to deploy the staked FRAX to sources that yield as close to the IORB rate as possible to keep the bottom APY close to the IORB oracle.

Specifiction

The recommended procedures for acquiring sDAI and sFRAX are as follows:

・sDAI Acquisition:
Deposit the acquired $3 million DAI into DSR to obtain sDAI.

・sFRAX Acquisition:
1.To prevent MEV attacks, use CoWswap’s TWAP Order to convert $3.5 million DAI to FRAX.
2.Deposit the acquired $3.5 million FRAX into Frax V3 to obtain sFRAX.

NextStep

  1. Gather community feedback and reach a consensus.
  2. Publish snapshot vote.

Disclaimer

0xlide & Kingo Iwamoto are not affiliated with or paid by Maker DAO or Frax Finance to publish this Proposal.

Copyright

Copyright and related rights waived via CC0.

2

Thanks for sharing the idea.

Two thoughts first come to mind…

1.) We originally ended the bonding curve due to concern about our dependence on DAIs long term stability and viability. With this in mind, I’m actually curious why our DAO is still sitting in so much liquid DAI but at least we are better positioned to swap than we were when still bonded. That being said, I don’t know that I personally view sDAI as any safer or less dependent on MakerDAO.

2.) To clarify, you are not suggesting an sDAI/sFRAX lp somewhere but rather direct holding of sDAI as well as sFRAX. Is that correct?

1 Like
3

Also, congrats on your first post and welcome to the Aavegotchi DAO forum @Lide!

1 Like
4

Hello, Mycaleum.

Yes, this proposal suggests transitioning the DAI currently held by Aavegotchi DAO into interest-bearing sDAI and sFRAX. It is not a proposal to hold sDAI/sFRAX LP.

Presently, more than half of Aavegotchi DAO’s treasury is in DAI. This serves as the primary evidence of Aavegotchi DAO’s financial risk being heavily reliant on MakerDAO, which, in my view, characterizes a highly unhealthy portfolio. Additionally, concerning collateral risk, sDAI and DAI are equivalent, with the distinction being that sDAI is an ERC4626 Token that generates yields, while DAI is an ERC20 Token that does not. I recommend referring to karpatkey’s report for insights into the risks associated with Maker DAO’s collateral assets. Furthermore, in order to reduce Aavegotchi DAO’s financial risk, we have recommended exchanging a portion of DAI for sFRAX. FRAX are the second-largest decentralized stablecoins in the market following DAI, offering high transparency and attractive yields.

6

Hello, and congrats for the first post!
sFRAX doesn’t seem so safe to put money on, btw let others experts comment

2 Likes
7

We are collecting feedback on this proposal until next week. If there are no objections or questions, we will conduct a vote on Snapshot next week.

8

Hi, @Mycaleum
Could you make snapshot?

9

Do we plan to consider some others DeFi strategy for stablecoins?